Category: Web/Tech

If you are a big company getting your butt kicked, it seems like the thing to do is issue a memo. Bill Gates did it after Microsoft lost out on the first wave of the Internet. Ray Ozzie wrote one for Microsoft about the importance of software as a service last year (see an earlier blog post). The most recent memo is from Brad Garlinghouse of Yahoo (see WSJ Article – annoying that it is password protected) who wrote a "call to arms" for Yahoo to stop doing everything and to focus on a few things and to do them well. According to Brad, "we want to do everything and be everything — to everyone" which means they are investing in too many areas and are spread way to thin. Brad goes on to outline a number of basic issues that can and will kill any business, small or large (see memo here):

1. We lack clarity of ownership and accountability2. We lack decisiveness

Rather than just outline the issues, Brad recommends some much needed solutions:

1. Focus the vision2. Restore accountability and clarity of ownership3. Execute a radical reorganization (blow up the matrix where there is no clear owner and kill redundancies and overlap)

This is all just basic Business 101, but sometimes if you grow too quickly and don’t take a step back and strategize about what’s important, you can get lost pretty quickly. Whatever happened to the whole media group in LA with Lloyd Braun? How about all of the turf wars between the tech team in Sunnyvale with the media guys in LA? As an example, whenever one of my portfolio companies wanted to do something with Yahoo we were always never sure of who the real owner of the decision was and consequently it made it incredibly frustrating to work with them. When there is no overarching vision and when there is overlap in terms of responsibility, you can imagine how much time executives can spend fighting amongst each other rather than focusing their aim on the competition. And inevitably this leads to slow movement, bureaucracy, and an exodus of top talent. While outlining a vision can sound hokey, it is important for every employee to not only know, but live, eat, and breathe the company mission. It sounds like Yahoo’s mission to be the "most essential global Internet service for consumers and businesses" lacks clarity for the executives. While I do use and love a number of Yahoo services, I always use Google for my searches. I am sure all of these basic changes and suggestions, if taken up by Yahoo, will help them execute in a more streamlined and efficient manner, but at the end of the day it is going to be tough to outsearch Google in terms of technology and monetization (2x the monetization rate per search for Google vs. Yahoo). Assuming Yahoo does narrow its focus, I can’t wait to see what ultimately will be the top 3 priorities for the company.

Greg Linden has a great post summarizing a talk that Marissa Mayer of Google gave at the recent Web 2.0 conference. I encourage you to read it because Marissa talks about how Google ran a user test where users wanted more search results. Surprisingly, traffic and revenue dropped by 20% and what Marissa discovered was that load times for less searches was .4 seconds and load times with more searches was .9 seconds. Despite the fact that users really wanted more results, in the end, according to Marissa and Greg, speed matters.

This makes total sense. In the broadband world we live in today, the Internet is about instant gratification. I could argue that one of the reasons YouTube exploded on to the scene (besides the fact that it had every copyrighted video out there on its site) is because of its use of Flash – no download and instant gratification right in the web browser. It sounds simple but it is true. There are many vectors that you can optimize with respect to consumer experience but take it from Marissa and Greg that in the end, users want instant gratification. In my mind what instant gratification really means is speed and ease of use. It has to load fast and it has to be easy. This is about reducing friction for users to experience your service and reducing the friction for you to generate revenue. Remember no matter how many extra bells and whistles you add, don’t forget that speed and ease of use really matters.

In an earlier post titled "When Competitors are acquired" I discussed that rather than sulk and wish it were you who was bought, smart companies will go out and capitalize on the opportunity as their competition is temporarily distracted and inwardly focused on creating synergies. Rather than comment on the whys of the Google Jotspot deal, I would rather point out what smart competitors like Ross Mayfield of Socialtext are doing to capitalize on the deal. As mentioned in his blog post:

Socialtext, the first wiki company, announced today a free hosted wiki program for JotSpot customers following that company’s acquisition by Google. Socialtext will migrate JotSpot wiki content and provide one year of Socialtext Professional hosted wiki service to any JotSpot customer who signs up by the end of November 2006. While most JotSpot customers are small-to-midsized businesses, this offer is extended to deployments of any size.

Who knows whether or not Ross’ program will be ultimately successful but I certainly applaud his efforts for being aggressive and moving quickly on the deal. For what it is worth, I have used both services in the past and while Socialtext was certainly more powerful and flexible, I found Jotspot incredibly easy to use. As i have mentioned repeatedly, reducing the barrier or friction to usage is incredibly important on the web and can be a make or break issue for your business. As Ross says, while Socialtext (higher end) and Jotspot (lower end) are clearly going after different segments of the market, it seems that Jotspot’s vision to go after the lower end and help the power user with an incredibly easy to use service won the day for Google, as it continues to expand its efforts to take on portions of Microsoft’s business.

Mike Masnick of Techdirt has launched a new service called the "Techdirt Insight Community." Mike is an active blogger but also has run a corporate intelligence service for awhile mining the web for customized news and insight tailored for your company (think competitive analysis, updates, reviews on your products, etc. – check out Jeff Nolan’s guest post on Venturebeat for more). As I have always thought, there is a ton of information on the web and interesting models can revolve around not only information arbitrage but also labor arbitrage. On the information arbitrage side, one company that has always intrigued me is Monitor 110, founded by long-time New York entrepreneur Jeff Stewart and run by Wall Street veteran Roger Ehrenberg. Their thesis is that there is a ton of information on the web and if properly screened for credibitlity and delivered in real time in a way that investment professionals can use (think bloomberg like screens), then you could help investors generate better returns. What Techdirt Insight Community reminds me of is Gerson Lehrman for the information age. For those of you not in New York or familiar with the hedge fund industry, Gehrson Lehrman has come out of nowhere over the last 5 years to build a huge business and becoming a "must-have" for all hedge funds. As you know, looking at leading indicators can be quite important to help make profitable investment decisions. What Gerson Lehrman did was assemble a community of experts that hedge fund professionals could call to discuss industry outlooks, etc. Gerson would get paid by the hedge fund and pay the professional, keeping a nice profit for itself. It has built quite a network – 600 clients asking 11k questions per month with 150k experts on tap. It seems like Mike is taking a page out of the Gerson book and applying it to the web, leveraging the experts out there (bloggers) and matching them up with companies that want specific insight on products, etc. I think it is a brilliant move and another great way that bloggers can monetize their passion.

It is always great to see hard work rewarded. Congratulations to Steve Klein, Pierre Berkaloff, and the rest of the Colloquis team (my partner Ned Carlson is on the board) for building the company over the last few years and making this happen. For any startup there are always a few missteps along the way but being flexible and adapting to the market to find the right opportunity is key. Colloquis did that in spades taking its bot and agent technology from an IM only platform to the web and creating a killer SAAS platform that enables any company to engage customers in typed natural language conversations, delivering answers to customers in real time. Take a look at AskComcast (see comcast.net and top right corner is AskComcast) to see the technology live – customers who need help engage in an online chat with one of our automated agents giving the customer the feel of a live, real-time dialogue with a human while being powered by our natural language processing technology. As Microsoft says in the press release today:

Xbox will be the first group within Microsoft to use Windows Live Service Agents. Colloquis technology will be a strong contributor in enabling Xbox® customers to rapidly find helpful information related to their support needs. The conversational tone and ease of use of the product will offer customers another approach with which to address commonly asked questions, providing quick resolution to customer issues. The product’s technical flexibility makes it an excellent fit with other self-service options that Xbox plans to release in the fall.

In addition, Microsoft plans to take advantage of Colloquis Internet bot technology in an application called Windows Live Agents, a conversational application that users can interact with via Windows Live Messenger. These “agents” are used to entertain, encourage engagement with products or services, provide a new advertising opportunity for brand advertisers, and drive search and information retrieval.

On the Windows Live Agents side, take a look at what can be done using Colloquis technology delivered over the Messenger platform. According to the Microsoft site, think of a bot as an automated contact that can be added to your contact list and that you can converse with using text to deliver information, complete tasks, or be entertained. I look forward to seeing how developers using this bot technology will tie together various web services and applications all through a simple buddy contact on your IM list. On the current Windows Live Gallery page, you can see an Encarta bot, a map searcher bot which interacts with the Virtual Earth Map through an IM chat, and an InsideMessenger bot that "interacts with Amazon, finds flights in realtime, integrates with RSS feeds and soon will integrate with YouTube/MySpace video feeds." I look forward to seeing Microsoft bring bots and automated agents into the mainstream. I can’t think of a simpler way to interact with web services or initiate commands than through a simple text chat.

I must admit that I have seen way too many social networking related plays that want to be the next MySpace of some niche market. When asked about monetization the standard answer is they have a much more focused audience than MySpace with highly targeted CPMs. Guess what, if MySpace is only monetizing a fraction of their visits, how can a tiny, little niche site scale to enough volume to make a meaningful business? In addition, who wants to sign up for multiple social networking platforms like MySpace, Facebook, and niche sites for politics, sports, etc. While there will always be a few dominant social networking sites, I firmly believe that we will see more and more social networking functionality get built and weaved into commerce sites and other ventures. One of the reasons why eBay and Amazon have done so well is because of their respective communities and the ratings that are created by their customers. Netflix does a great job as well by allowing you to sign up friends and track their recent movies and get recommendations based on your location.

The next step in this evolution of commerce will be social shopping or companies leveraging Citizen’s Media (blogs, podcasts, videocasts, tagging) to drive commerce. According to Answers.com, "Social Shopping is based on the principles outlined in the wisdom of crowds where a large group of users can recommend products to each other and between them work out what to buy and which ones have the most buzz." I believe this is an interesting area that has not been fully tapped yet. At the root of it, people want to connect. Most people I know tend to check the Internet first to research a purchase and also ask friends for recommendations or reviews about products. The more inefficient a market is, the more opportunity there is to educate consumers and peers leveraging the web.

A great example is the wine market. I am certainly no wine connoisseur, but I have been trying to learn more about it over the last two years. Over time, I moved from an Excel spreadsheet to using the web to track some of my purchases and to learn more about each bottle. One of my favorite sites is Cellartracker. It leverages almost a wiki like concept so when I add a bottle of wine, it first searches its database to see if anyone else in the community has already input the data. If it does, I can easily add a bottle to my virtual cellar and if not, I can add the data myself. It already has over 3 million bottles of wines in its database so I did not have to do alot of work to get started. It also has community reviews built into each input of wine so you can get recommendations for other bottles and figure out what others that have the same bottle as you have in their wine cellar. The downside is that the UI is not the prettiest and the site may be too flexible for the average user. Cork’d is another example of social shopping – it allows you to catalog your wine, review and rate it, maintain a wish list, and subcribe to your friend’s wine lists.

One of my favorite examples of leveraging citizen’s media is Wine Library, which has one of the largest selection of wines and some of the best prices on the web. Gary Vaynerchuk, Director of Operations, really gets the web and has leveraged podcasts and videocasts to launch Wine Library TV, a wine video blog with daily updates. If you haven’t checked it out, I suggest subscribing to his videocast and buying wine from his store. I just had dinner with Gary tonight and it really blows my mind to hear how he helped take a small, family owned wine retailer based in New Jersey and leveraged the Internet to create a powerful wine retailer. It is great to see Gary bring next generation web concepts to the under the radar world of wine retailing. He especially understands how content can and does drive commerce for his company. Every videocast drives sales and as you can see from his site, he has built a pretty loyal following in a short period of time. He has a pretty sizable subrscriber base and uses RSS, tagging, and comments effectively to build a community around his videocasts. Since Gary understands how powerful the web can be, I would not be surprised to see him becoming the Robert Parker for the web generation as he delivers his reviews and thoughts in a way that we get and can consume on the go on any device. The big difference will be that Gary can and will leverage the web and his community to rate the best wines versus relying solely on the fine taste of one person. When speaking with Gary, it is also quite interesting to hear him talk about Wine Library as a content and social networking site as much as an ecommerce player. In the future, Gary plans on delivering alot more functionality on his site allowing his users to instantly add any purchase to their own virtual wine cellar, take notes on the wine, and share recommendations with their friends or the public. In my mind, this is a great example of how powerful social networking and blogging concepts can be for ecommerce plays. It has allowed Gary to build a stronger brand, acquire new customers virally, improve his conversion rates from web marketing, sell more wine, and ultimately boost his profitability per new customer (lower acquisition costs + increased sales). Given some of these benefits, I truly believe that social shopping will become a big thing in the next few years.

Congratulations to George Cigale and his Tutor.com (full disclosure – portfolio company and my partner Dan DeWolf is on the board) team for the launch of their direct-to consumer service which offers live homework help and online tutoring. This is the culmination of a mission that George set out to realize over 8 years ago. What is most impressive to me is that while George’s initial focus when he launched the service in 2000 was to go after the consumer market, he quickly recognized that consumers did not have the bandwidth (5% broadband penetration vs. 45% today) and the comfort level to purchase online tutoring sessions. So like any smart entrepreneur, George did an analysis and went to the where the money was, providing a service to state and local libraries to offer to their constituency. George’s patience and foresight helped Tutor.com weather the nuclear storm and build a real business behind the scenes. Of course, timing is everything and George and his team have been waiting for the right time (TODAY) to offer a direct-to-consumer service which provides live homework help for students. As George says:

You may know that over the past five years, we have focused on working with libraries across the nation to help kids connect with a real live tutor for one-to-one help. We’ll serve over 1 million students this year through our Live Homework Help programs in over 1,500 libraries in 40+ states, and we will continue working closely with libraries as we expand our offerings. 94% of students say they got the help they needed and would recommend the service to a friend, and lots of great news coverage about those programs at Tutor’s Press Page.

No more waiting for your tutoring session next week or driving your child to a tutoring center. Tutor.com Direct allows a child to get the help they need every day, before small difficulties turn into significant learning problems.

I hope you’ll try it, have your kids try it, and share it with friends and colleagues. You can use the code "GCLAUNCH1" to get your first two hours for $5. Plus a third hour free if you call us at 800-411-1970 and give us your feedback after trying the service.

Hidden in this promotion for you to try this service are some nuggets of wisdom, the most important of which is that as a startup you must be flexible, flexible enough to know when your go-to-market strategy is not working and that sometimes you have to change, change your business model, your product, or your pricing strategy in order to be successful.

While reading the Wall Street Journal this morning, the Facebook story caught my eye. Facebook has clearly built a huge community and is one of the leading social networks on the web. However, I was mystified about the backlash the company received about its new service allowing users to better keep track of their friends and what they are doing. On the surface it seems like the company was trying to make it easier for their users to keep track of their friends’ whereabouts and online activities. However, it seems that there is a huge privacy backlash online (according to USA Today already 500k of 9.5mm members are against this) – I guess part of the lure of the Facebook that it was more of a closed network than MySpace. All that being said, I am mystified because I wonder what level of customer feedback the company solicited in rolling out its new service. Sure, the larger your audience is, the harder it is to make everyone happy. In addition, there are many factors that go into the release of a new product that includes fixing bugs, soliciting customer feedback, responding to competition, and adding new features that will maintain a company’s technological lead in the market. According to the Wall Street Journal article today:

Ms. Deitch said Facebook’s feedback from users comes in the form of emails to its customer-service email address, which the company’s product-development team reviews weekly. But the company typically doesn’t solicit feedback by showing features to users before launching them.

Facebook held an emergency meeting yesterday to plan its response to the backlash. Ms. Deitch said that the new features are "here to stay" but that staffers are discussing possible tweaks to appease users. She wouldn’t say what those changes might be.

While you cannot solely develop based on what existing customers want because you may miss the next big opportunity, I thought the benefit of web-based software was that you could test and tweak very easily. If what Facebook’s spokesperson says is true ("But the company typically doesn’t solicit feedback by showing features to users before launching them"), I would suggest that they build some new release practices to maybe roll out a new feature to a subset of the population and gather feedback before having to deal with this maelstrom of negative publicity. Isn’t that what a lot of the best web-based businesses already do? To be fair, Mark Zuckerberg has responded admirably and promptly to his community. However, he could have avoided this all in the first place if he tested the implementation of the new features with a small subset of his community and I am sure that he would have learned that balancing privacy may have been more important for his users than raw functionality. My advice to many startups (particularly web-based ones) – after internal QA, try testing new features with a small sample set to further refine and tweak before GA.

We all know about the groundbreaking work from Chris Anderson from Wired about the Long Tail. In theory it makes a ton of sense – on the web, companies have no inventory costs and can stock as many titles or products as possible and that over time the one-offs or misses can generate as much or more sales than the hits. As you can imagine, this Long Tail meme gets mentioned by many an entrepreneur that I meet and saying "we are going after the long tail of X" is almost as popular as saying "I’m a Web 2.0 company." I have not read the book or the data, but as I said, in theory it sounds great. You could even extend this long tail concept to user generated content. For example, YouTube could be like the long tail of video – people get to see new content which would never sell at any traditional bricks and mortars store and YouTube has the opportunity to make money off all of this Long Tail content.

As for the Long Tail, the only question one can ask is when will it happen vs. if it makes sense or not. In today’s Wall Street Journal, Lee Gomes (see his article here – sorry, requires login) challenges the timing of the Long Tail and comes up with some interesting data.

"By Mr. Anderson’s calculation, 25% of Amazon’s sales are from it’s tail, as they involve books you can’t find at a traditional retailer. But using another analysis of those numbers – an analysis that Mr. Anderson argues isn’t meaningful – you can show that 2.7% of Amazon’s titles produce a whopping 75% of its revenues. Not quite as impressive.

Another theme of the book is that "hits are starting to rule less." But when I looked online, I was surprised to see what seemed like the opposite. Ecast says 10% of its songs account for roughly 90% of its streams; monthly data from Rhapsody showed the top 10% songs getting 86% of streams."

Lee has a few other examples and one of the most interesting ones is when he states that when Chris looked at the data 2 years ago for eCast that 2% of songs did not play every quarter and now with a much larger inventory that number has risen to 12%. Maybe eCast just had the hits up in the first place? In short, Lee Gomes concludes that the Long Tail may be true but it will also take a long time before it happens.

From my perspective, I do believe we still live in a hits driven world but that it is definitely changing. In addition, if you apply the concept of the Long Tail more broadly to concepts ike YouTube, etc. then it is happening today. Regardless of what you think, Lee’s article is one of the few that I have seen challenging the Long Tail meme that we all want to believe.

UPDATE: Since I posted from the train this morning and have been in meetings for most of the day, I did not get to see Chris Anderson’s thoughtful response to Lee Gomes. Here is an excerpt from Chris’ post:

What it does say is that the current data at Rhapsody, Netflix and Amazon show that the tail amounts to between 21% and 40% of the market, with the head accounting for the rest. Although I don’t discuss this in detail in the book, in the case of Rhapsody, the trend data suggests that the tail (as defined above) actually will equal the head within five years. Which is why the language Gomes cites from the book jacket is actually all phrased in the future conditional tense ("What happens when the combined value of all the millions of items that may sell only a few copies equals or exceeds the value of a few items that sell millions each?"). I asked him to quote the jacket copy in full context, but it apparently wasn’t convenient to his thesis to do so, so he didn’t.

From this post, it seems that Lee misquoted Chris and that Chris agrees that it will take some time for the Long Tail to outsell the hits.

UPDATE 2 – Please read Lee Gomes’ comment to my blog post below where he clarifies his thinking on the article and stands firm on his position especially in relation to Chris Anderson’s rebuttal and my commentary where I suggest that he may have misquoted Chris about the impact of the Long Tail.

Ed, I usually don’t respond to blogs, not because I don’t value them enormously — I do — but simply because I write for a pretty big outlet myself, and think that once I have my say about something, I should shut up and let others have theirs. I need to comment, though, on your suggestion that I might have misquoted Chris. As I hope you appreciate, that is one of the worst things a journalist can do, even (or especially) when writing about a person whose views are being subject to scrutiny.

Here is how I described the book’s premise about this matter: "In the book’s main sections, Mr. Anderson writes that as things move online, sales of misses will increase — so much so that they can equal or exceed the sales of hits." Note that it is written in the future conditional tense, exactly like Chris says own his sentence is. I never said that Chris said that misses were currently outselling hits; my point was simply that considering all the to-do he makes about this in the book, I was a little surprised that he didn’t have any current examples. Had I had more space than I do for my column, which recall runs in the print paper and thus is limited to around 850 words, I would have happily quoted Chris’ entire sentence, as well as this other one from the jacket. "Using the worlds of movies, books, and music, he showed how the Internet has made possible a new world in which the combined value of modest sellers and quirky titles equals the sales of top hits."

As for the suggestion, not yours, that I misunderstood Chris’ methodology: I know perfectly well how he made the calculations he did, and explained them (I hope) very clearly in my piece. I added, though, that there was another way of looking at those same number, making it clear to my readers that Chris did not think that second method was meaningful. At least I gave readers a choice between two methods; the book didn’t even acknowledge that some other method existed.

Thanks for letting me have my say, Ed. Lee Gomes Wall Street Journal

Ok-this is done and I thank Lee for questioning the Long Tail meme and stirring the pot as I believe this healthy debate will only improve our thinking and analysis around this concept. Of course, I am curious to see the how the data around the Long Tail evolves as time passes as this transparency will help all of us get a better understanding of the timing and true impact of the tail in certain markets.

Having invested in a couple of security companies, I am pretty adamant about security when it comes to my personal computers. Until now, I have been using Norton Antivirus, ZoneLabs ZoneAlarm Security Suite, and Webroot’s SpySweeper. Things were going great until a few days ago when I upgraded my Webroot Spysweeper from v4.5.9 to v5 and then all hell broke loose. My computer kept freezing on the simplest task such as opening a browser and after several diagnostics I realized it was Spysweeper. After uninstalling it, I still had problems so I am now in the process of rebuilding my machine. After doing a Google search, I recognize that I am not the only one with a problem as you can see here.

For the life of me, I don’t understand how a great product went to shit with just one release. Maybe it was the fact that they raised $100mm or so of venture capital and feel the heat to grow and expand quickly. As you might notice, every security player that locks down the home PC has evolved into a suite-based approach. In addition, I see that Webroot also expanded to the enterprise as well. All I can say, is that any company looking to expand and grow should not forget what got them there – in Webroot’s case it is great antispyware software for the individual consumer. Webroot may also want to do a better job of QA before releasing its product to the market. Given all of these issues, I am done with Webroot and moving on to another anti-spyware program.